Free money? Utahns making successful use of Kickstarter

Utah obviously has a proud history of tech innovation, so there are lots of great tech projects in the mix. But we've also seen projects from creative people in fashion, games, film and more.—David Gallagher, Kickstarter spokesman

SALT LAKE CITY — Utah is among the leaders nationwide for entrepreneurial endeavors. But for some, getting started without deep pockets can be challenging.

When you want to start a business or develop an idea but don’t have the money, one of the more increasingly popular trends is to ask “the crowd” for help. Thousands of new innovations and artistic endeavors have received major financial support through Kickstarter — a New York-based crowdfunding platform that has helped scores of local startups get on their way.

Over the past five years, 1,762 Kickstarter projects from Utah have together attracted more than $18 million in pledges from people willing to help bring those ideas to life.

“Utah obviously has a proud history of tech innovation, so there are lots of great tech projects in the mix. But we've also seen projects from creative people in fashion, games, film and more,” said Kickstarter spokesman David Gallagher.

According to the Kickstarter website, every project creator sets his or her project's funding goal and deadline. If people like the project, they can pledge money to make it happen. If the project succeeds in reaching its funding goal, all backers' credit cards are charged when time expires. However, if the project falls short, no one is charged. Funding on Kickstarter is all-or-nothing.

Thus far, the top Utah fundraiser has been a Springville company called Invent-A-Part that developed the RigidBot 3-D printer. Founder Michael Lundwall designed a customizable 3-D printer that is easy to use and affordable, he said.

3-D printing or additive manufacturing is the process of making a three-dimensional solid object from a digital model. 3D printing is achieved using an additive process, where successive layers of material are laid down in different shapes under computer control.

When Lundwall set up his Kickstarter campaign, his original goal was to raise $31,500 in 45 days. To his surprise, that goal was reached in just 12 hours. By the time his campaign was over, he had received nearly $1.1 million in pledges from 1,952 backers.

“I had no idea it would hit over a million (dollars),” he said. When the pledges reached the low six-figure range, the company expanded to a “stretch goal” — an unofficial target beyond a project's original funding goal — that promised rewards or other incentives if it was reached. Using funding raised through the campaign, Lundwall said, the company was able to offer improved versions of its original RigidBot device. With so much extra capital at its disposal, he said, the company would be able to develop a truly exceptional product.

“We basically took all that capital and threw it back into research and development to develop a better RigidBot,” he said. “The machine that people pledged for on Kickstarter and the machine they are receiving (now) is 10 times better.”

Thanks to crowdfunding, Lundwall and other entrepreneurs are now able to raise capital without having to incur massive debt or give up significant stakes in their businesses.

Crowdfunding — also known as crowd financing, equity crowdfunding or hyper funding — is an approach to raising capital for new projects and businesses by soliciting contributions from a large number of stakeholders. Financial contributions are typically made by online investors, sponsors or donors to fund for-profit or nonprofit initiatives or enterprises.

There are four major types of crowdfunding platforms — equity-based, lending-based, reward-based and donation-based, according to crowdsourcing.org, an industry website. The classifications are based on the funders' primary motivation for engaging in crowdfunding.

An equity-based crowdfunding platform is a model in which investors receive an interest in the venture they support. Another equity position could include revenue or profit-sharing arrangements.

A lending-based crowdfunding platform occurs when investors receive fixed periodic income payments and expect repayment of the original principal investment.

In stark contrast to equity-based and lending-based models, reward-based and donation-based models are characterized by nonfinancial motivations for engaging in crowdfunding.

Reward-based crowdfunding platforms allow investors to gain a nonfinancial benefit in return for financial contributions. Nonmonetary rewards often take the form of a token of appreciation or the pre-purchase of products or services.

Donation-based crowdfunding platforms provide investors with a way to donate to causes that they want to support with no expected compensation such as a philanthropic or sponsorship-based incentive.

It has been used for funding disaster relief, supporting artists by reaching out to their fans, funding political campaigns and funding a startup company, movie or small business.

Crowdfunding was tied into the United States of America JOBS Act — Jumpstart of Business Startups Act — that allows for a wider pool of small investors with fewer restrictions.

Launched in 2009, Kickstarter claims to have received over $1.1 billion in pledges from 6.3 million donors to successfully fund over 63,000 projects, including films, music, stage shows, comics, journalism, video games, food, art, technology and fashion, among other things.

Among other successful Utah campaigns launched through the platform are Zen Float Co., which developed an affordable isolation or float tank for home use, and Tessel Supply, which created a backpack that allows the user and the contents of the bag to influence the form of the bag and make it unique with every use.

Both Salt Lake City-based companies far exceeded their initial pledge goals and plan to use the added funding to grow their business or pursue new projects.

“Kickstarter is good for validating an idea to determine if there is a demand for it and also have the money upfront to get it produced,” explained Tessel Supply co-founder Daniel Shirley.

Shane Stott, director with Zen Float Co., said having the upfront capital will allow his company to advance much faster than a typical startup with limited financial resources.

“This will allow us to get staff right away (and) a building,” Stott said. “It’s the sweetest way to start it because we would have had to run it out of our current (smaller) location and put in more hours. But now this allows us to get rolling faster ... with so much less struggle.”